“During Q3FY12, its Product Revenues grew by 15.3% QoQ & 30.3% YoY to Rs. 6,044.9 mn, ahead of our estimates, mainly on account of currency exchange rate benefit. Its Product’s EBIT grew by 25.8% QoQ & 16.8% YoY to Rs. 2,523 mn, driven by strong growth & currency benefit. The growth of Product Revenues depends on components such as license fee, implementation fee & AMC Revenues. The license fee & implementation fee are volatile in nature and are subject to new licenses & discretionary budgets, while its AMC Revenue contributes steady growth to its Product Revenues. Going forward, we expect its product business to deliver decent performance, driven by its strong execution capability, proven track record and decent demand environment. During Q3FY12, its services Revenues declined 7.7% QoQ & 25.2% YoY to Rs. 1,955.7 mn, lower than our estimates. Its services business’s EBIT declined by sharp 33.9% QoQ & 49.4% YoY to Rs. 430.1 mn, mainly due to fall in services Revenues and change in effort mix more towards onsite (51% in Q3 vs. 45% in Q2). Its sluggish services business performance was due to OFSS’s business transformation strategy to focus more on value added high margin contracts, impacting the services business’s Revenues growth. We expect the Revenues of its services business to remain sluggish for 2-3 more quarters before it stabilizes again to grow steadily going forward.”

“In view of its 9MFY12 performance, we have slightly increased our FY12E Revenues & APAT estimates, while largely have maintained FY13E Revenues & APAT estimates. We now expect its consolidated Revenues to grow by 7.8% & 13.2% in FY12E & FY13E, respectively and its APAT to decline by 3.2% in FY12E (decline in APAT due to higher tax provisioning), while to grow by 10.5% in FY13E. At CMP of Rs. 1941, the stock is trading at 15.0x & 13.6x its FY12E & FY13E earnings respectively. We maintain our “Accumulate” rating on the stock with a target price of Rs 2288,” says Sushil Finance research report.

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